Articles from 2012

OPEC is scared of shale energy: Here's why

OPEC acknowledged for the first time on Thursday that technology for extracting oil and gas from shale is changing the global supply picture significantly, and said demand for crude would rise more slowly than it had previously expected.

In its annual World Oil Outlook, OPEC cut its forecast of global oil demand to 2016 due to economic weakness and also increased its forecast of supplies from countries outside the 12-nation exporters' group.

The correct opening should be OPEC acknowledged for the first time publicly: OPEC have been looking at shale energy for a long time, and unlike Gazprom and shale gas, have always had an educated and open minded view of it. They've been among my readers for over three years for instance. So take some of the report with a large dose of salt flavoured fracking fluid. OPEC didn't get where they were by being stupid or blind.

In OPEC's new forecast, shale oil will contribute 2 million barrels per day (bpd) to supply by 2020 and 3 million bpd by 2035. For comparison, 2 million bpd is equal to the current output of OPEC member Nigeria, which is Africa's top exporter.

OPEC said that in the medium-term shale oil would continue to come from North America only, but other parts of the world might make "modest contributions" in the longer term. Shale oil and gas may also play a role in OPEC members themselves.

Previous editions of the OPEC report saw no significant supply addition from shale oil. As recently as June, oil ministers including Rafael Ramirez of Venezuela played down the prospects as OPEC met in Vienna for its last meeting to set output policy.

OPEC Secretary General Abdullah al-Badri told reporters in Vienna that shale oil still did not pose a threat to the group as rising demand would easily absorb the higher output. "It doesn't concern us that much," he said.

Meanwhile from a presentation in Houston yesterday by a reader who wishes to remain anonymous explains why OPEC can no longer deny shale energy reality. Firstly, it's been a while since I've talked about US oil in general and the Eagle Ford in particular so we'll set the scene. This from an EOG presentation in January:

The speaker (who isn't EOG obviously) used these notes for the above slide, and predicted 2 million from the Eagle Ford alone by 2017.

The Eagle Ford Play is now the HOTTEST Oil Play in the US.

• And the Eagle Ford Play is HUGE.

• EOG, a large public US exploration company that is a leader in using Multi-Stage Hydro Fracing in oil plays and owns a big position in the Eagle Ford Play has publicly stated that the Eagle Ford Oil Play will be ranked #6 on the list of the all time biggest Oil Fields discovered in the United States, with an estimate of 5 billion bbls of recoverable oil (and I believe this is a conservative estimate.)

The Eagle Ford Play illustrates just how far and how fast hydraulic fracing technology has progressed to unlock new Oil reserves here in the US since 2008.

But that slide only serves to illustrate the speed with which shale energy can evolve. Jack Welch said the other day that shale energy is the biggest thing since the Internet. There's an analogy there in how shale energy is evolving physically far sooner than people can keep up mentally. First the USA. Next stop China:

On this side of the ocean of course any number of "experts" think we'll never see such transformation. But they think big in Texas, so what really matters is China. As England Sleeps over shale energy, who wants to bet against China? Not NHA's friend from Texas and not me either.

What keeps OPEC awake at night is the last question on this slide

The interesting angle here is that if we combine using less oil (via both efficiency and natural gas vehicles) with producing more oil via shale energy techniques, then we are talking not only interesting volumes, but very intereresting ones. I've shown you the slide.This from the speaker's notes, is for those for whom I have to draw a picture:

But, if both the US and China, the two biggest Oil consumers are able to scale quickly unconventional Oil play development, this new addition to global oil production could make a significant impact on global supplies bring as much as ±10 million barrels of excess capacity into the global markets. If this happened, OPEC’s ability to control world oil markets would be doubtful and in the “perfect storm” we could see world oil prices dropping to new prices levels significantly lower than prices now projected by most experts.

Over the years there have been any number of cockamamie ideas printed here from any number of sources, myself included. Looking back I can say they've mostly been wrong in only degree or timing. Could history repeat? Maybe not. But the questions keep people awake.

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Comments (4)

Andy

At thought experiment: a couple of weeks ago, I looked at the EIA Weekly Petroleum Report and saw that US crude oil production had grown 12% in a year. Using the old rule of thumb to divide 72 by the rate of growth and you can get the doubling time. Which by my math is 6 years from now we produce 12M barrels of oil a day. Which is close enough to energy independence that Canada and Mexico could top us up.<br /><br />Is the US prepared for energy independence in 2018? Do we even have a plan? Do we have enough of the right pipelines?<br /><br />I realize this is pure guesswork, but more intelligent people than I should be looking at these questions.

Andy

I see I didn't look at the slides closely enough and they anticipated everything I said. ~12% YOY increase in oil production in the USA might be in the cards for the next few years! <br /><br />I still think not enough people have thought this through and let us know how we will prepare for this. No guarantee it will happen, but wouldn't it be nice if it did!<br /><br />Reuters had an interesting story by John Kemp turning attention to the Bakken.

When this, or something like it, happens, even Europe will have to move on fracking. Interesting to watch the comments appearing re the significant uncompetitiveness of Europe because of its high energy prices.<br /><br />Chinese labour costs are rising (how fast will depend on the new leadership) and lowering energy costs seems already to be a critical priority for China.

roger

I know nick doesn't quite agree with this but we are at a stage in human history like none before, so many more people are becoming so much richer that demand is growing more and more rapidly.<br /><br />In such a world commodity prices can't be cheap because suppliers just need not bring forward new supply for a few years and just wait for more demand to soak up the excess supply.<br /><br />The usa enjoys cheap natural gas because it is a stranded commodity.<br />It enjoys cheap coal because again it is largely stranded<br />It doesn't enjoy cheap oil because it is able to be shipped globally in very large quantities<br /><br /><br />The first concern for nations is finding the 30 million barrels of oil per day China will need.<br />The second concern is finding the 10 million barrels per day the smaller developing nations will want and the third is finding another 30 million barrels per day for India. That is 70 million barrels per day above and beyond what we now require. And not only that but we must also find some to displace production falls in existing fields.<br /><br />shale gas/oil will be part of this bridge but certainly nowhere near all of it<br /><br />The wild card is efficiency and or legislation. That would keep me up at night if I were an opec oil minister.<br />For instance computer driven cars could reduce demand for oil by 20-40 million barrels a day rapidly<br />The usa putting a Europe like fuel duty could drop demand by 5m barrels a day rapidly